Texas Pauses Data Center Approvals for Statewide Audit, Stops Short of Ban

Overview of the Directive

The directive, issued by letter to the PUCT chairman and ERCOT president, requires PUCT and ERCOT to undertake a comprehensive verification and audit of all data centers advancing through ERCOT's interconnection process "before any additional data centers are approved to move forward." The directive, which cites the significant volume of data center connection requests pending before ERCOT, states that any data center project that does not comply with PUCT and ERCOT requirements must be denied connection to Texas's electric grid.

The directive also requires that PUCT and ERCOT obtain the following information from each data center project:

• The extent to which the project relies on tax incentives, grants, abatements, or other public financial assistance;

• The extent to which the project relies on the ERCOT grid, including projected annual and peak electricity consumption and on-site generation;

• The extent to which the project will rely on public water infrastructure, including projected annual and peak water consumption, anticipated supply sources, and use of cooling technology;

• Measures undertaken by the project to reduce effects on the community, including noise mitigation, light controls, setbacks, traffic improvements, and emergency response coordination; and

• The project's ownership and controlling interests.

As part of the rationale for the directive, the governor cited the failure of certain data centers to comply with PUCT's survey measuring water and power usage under the General Appropriations Act, as well as questions raised at legislative hearings and public meetings about the impact of data centers on the grid and host communities. The directive sets no completion date for the audit.

Impact on Existing Projects

In response to the directive, ERCOT postponed the "Batch Zero" system-wide review of large-load projects already in its queue; it will not issue the project classifications previously scheduled for August 7, 2026, instead seeking a good-cause exception from PUCT at the commission's meeting on August 20, 2026. The directive does not make clear whether the audit reaches only the Batch Zero cohort or the entire queue, or whether a project may proceed once its own audit is satisfied rather than waiting for the audit to conclude as a whole.

Growing State Opposition to Data Centers

Texas's directive reflects a bipartisan shift among states: away from courting data centers with financial incentives and towards restricting and regulating data centers' grid, water, and community effects. Governor Abbott, a Republican, acted less than a month after New York Governor Kathy Hochul, a Democrat, signed Executive Order No. 62, establishing the nation's first statewide moratorium on new large-scale data centers. Moratoriums or similar restrictions have been introduced or considered in at least 15 states, while additional states have pursued cost-shifting protections and other regulatory proposals.

Companies should continue to closely monitor legislative and regulatory developments in states where they are considering data center operations, particularly as Texas's audit and New York's moratorium may influence other states to pursue similar restrictions. Critically, these restrictions do not prevent companies from enforcing existing rights, nor do they foreclose legal challenges to restrictions.